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Breckenridge Brewery

Introduction

In 10, Richard Squire opened Breckenridge Brewpub in Breckenridge, Colorado, the first of many he would found. This small establishment, across the street from the popular Breckenridge Ski Area, was able to make ,000 barrels of beer per year and served the purpose of keeping him and his friends able to live the dream of being able to ski all day, and drink good beer all night. Soon, however, demand outgrew the abilities of the owner and small staff, making expansion necessary. Squire opened his second pub in an old warehouse that he purchased in a rundown neighborhood in Denver. By 18, that rundown neighborhood had been renovated and become Denver’s new hotspot, helping boost sales for the Breckenridge company. During the mid 10’s, the Brewpub industry took off, and Breckenridge expanded its operations across the United States to cities such as Buffalo, Birmingham, Tucson, Memphis, and Omaha. Between 15 and 17 alone, the company was able to open six new brewpubs and expand its wholesale beer distribution to over 0 states. Currently, however, the company only has full service brewpubs in Breckenridge, Colorado, and in Denver, Colorado and sells its products in 1 other states.

Products

The goal of a microbrewery is to make beer from the purest ingredients and maintain quality and freshness without pasteurization. Breckenridge Brewery accomplishes this by employing brewmasters to create and craft each of its own original recipe specialty beers. Todd Usry, a graduate of the famous Siebel Institute, was at the helm of the beer creation for the company in the 10’s. He was responsible for recipes, such as their signature beer Avalanche that won the company several distinguishing awards. He was also involved in the creation of their other lines of beer. Breckenridge currently makes the Avalanche Amber Ale, Autumn Ale, Pale Ale, Christmas Ale, Oatmeal Stout, Pandora’s Bock, SummerBright Ale, and their newest creation, Hefe Proper. In addition to these, they also make seasonal beer flavors that change from year to year. Each of these items is sold at one of the brewpubs or is distributed in six-packs of cans, twelve packs of 1 ounce bottles, or by keg or draft.

Background

In 18, Kyle Craig was appointed the new CEO of Breckenridge Holding Company (the parent company of Breckenridge Brewery). He immediately began reviewing the company’s financial data and related industry data. He found that from 14 to 15, craft beer sales industry wide had grown 51%, but by 16, that growth figure had dropped to 6% and by the end of 17, growth for the industry was only .%. The large mass-production breweries such as Anheuser-Busch, Miller, and Coors controlled over 0% of the American beer market at the time, and Craig wondered how he would regain market share. He turned to his key management staff for help. In the last three years, Breckenridge had expanded quickly into new markets. Craig wasn’t so sure that this was a wise decision on the company’s part. Had they expanded too quickly? Did they spread themselves too thin when they expanded across the United States? He felt that these were questions that needed to be answered if Breckenridge Brewery was going to move forward and be profitable.

In order to help answer these questions and others, Craig examined data to see if they were targeting the right consumers and were in the right markets for their beers. He found that a 16 survey discovered that 18.% of consumers with incomes of $50,000 plus ordered more craft beer than in 14. He also found that consumers in the Generation X group, or those between the ages of 1 and 4 were more likely to purchase a handcrafted beer than those over the age of 55. Based on this information and other sources, he identified the Breckenridge target market as individuals who were upper-middle class, well-educated, interested in outdoor recreation, and between the ages of 4 and 45. Craig next looked at consumption patterns of Americans to determine whether or not they were opening brewpubs and distributing in the right regions. He found that the West South Central region and the Mountain region had the highest annual per capita consumption rates (see chart below).

With all of this information, he set forth to find a way to turn the Breckenridge business around and make each individual unit profitable.

The Value Chain

According to the textbook the value chain analysis is the building blocks of competitive advantage. Breckenridge Brewery has many challenges throughout its value chain. It all started with the tidal wave of growth in the craft brewing industry. According to industry information from 1 to 16 companies were showing between 5%-75% growth per year. However, there was no growth in 18. The company was driven primarily by opportunistic real state deals and executed without a comprehensive plan. The brew-pubs suffered from a lack of consistency, poor communication and inefficiency. They did have an experienced workforce because most of the employees had been there since the beginning. One of their strengths was the freshness of their beer, because they used pure ingredients. The downside to this was that its life span had to be monitored and rotated it was also costing the company 50,000 per representative to carry out this task. The beer also had to be shipped-out in refrigerated trucks, which was costly. Breckenridge beer was distributed in about 0 states, but the Colorado market generated over 50% of the total sales. There was not sufficient information to build a chart for the value chain activities using overall cost leadership or examples of differentiation because they simply did not list them in the article.

Since the end of the time period of this case, which was 18, Breckenridge has undergone several changes. There has been a considerable amount of consolidation in their business scope. Since Breckenridge Holding Company is not publicly traded, current financial information could not be attained. All of the Breckenridge brewpubs outside of Colorado have since closed down, and Breckenridge has scaled down the distribution of its beer from as many as 8 states in 18 to 14 states now, including Colorado. This downsizing in the distribution was in response to stagnant growth in the craft beer industry and poor beer sales from its brewpubs and its retail distributors. In 17 the growth rate for the industry was .%, off its high of 51% just two years before. In 00, the industry continues to maintain a .4% growth rate. There are currently four brewpubs either partially or entirely owned by Breckenridge. The original brewpub in Breckenridge is still operating along with the Blake Street brewpub across from Coors Field, the Kalamath Street brewpub, which is also the site of its largest brewery, and more recently Breckenridge opened a brewpub in Parker, Colorado. These Colorado sites have always been the most successful for Breckenridge, and therefore the survivors of the sluggish growth in the craft beer industry. A large part of their success had to do with the ski/mountain theme that the brewpubs held. The brewpub locations that have been closed since 18 include Buffalo, Birmingham, Memphis, Omaha, and Tucson. Breckenridge has downsized its operations to focus of their core market, primarily in the Colorado area.

There are a number of financial ratios that can be performed on a company to see how it is doing both short term and long term. The current ratio is a short-term indicator of the company’s ability to pay its short-term liabilities from short-term assets. This is done by dividing current assets by current liabilities. This figure should always be above one, or the company does not have enough assets to meet its liabilities. Breckenridge Brewpub’s current ratio for 18 was 1.76 and in 17 it was 1.. This shows that the company is able to pay its short-term liabilities with its short-term assets. Another ratio that was done on Breckenridge Brewpub was an acid test. This measures the company’s ability to pay off its short-term obligations from current assets, excluding inventory. This number should also be above one for a company to feel comfortable. In 18 the ratio was at .4 and in 17 it was at 1.54. This shows that the company should not have any problems meeting their debt obligations. The last financial ratio that was done on Breckenridge Brewpub was a debt to asset ratio. This measures the extent to which borrowed funds have been used to finance the company’s assets. In 18 the debt to asset ratio was .4 and in 17 it was .84. This number should stay below a .40. The higher the number the more risk that is involved in the company.

Competitive Strategy

In order to better track results, we plan to separate the operations of the brewery and the brewpubs. This will ensure that the brewpubs are not masked by the profits of the brewery. We also plan to increase our product line to keep up with the ever changing tastes of our target market. This will increase our market share in the microbrewery industry and give our customers a more customized beer that can not be imitated by the mass beer companies. Another strategy we feel will be beneficial to the company is to create a more uniform theme and menus in the brewpubs. Our target market enjoys travel and it would be to our best interest to create a common ground for brewpubs throughout the United States. In order to achieve this uniformity, the service received at the brewpubs must be up to par for our affluent market. To achieve this, an intense training program will be implemented to give the best service and keep the customer coming back.

Conclusion

Our market share in the craft beer industry can be saved and increase if the strategies mentioned are implemented in an effective manner. We are very optimistic that the beer consumption market will continue to grow and we want our stake in the growth.

Additional Charts (Value chain, EFAS, IFAS, SWOT, SFAS, TOWS, etc.)

Top 5 Specialty Brewers in the U.S. (001)

1 Boston Beer Co., MA 14 Portland Brewing Co., OR

Sierra Nevada Brewing Co., CA 15 Harpoon Brewery, MA

Jacob Leinenkugel Brewing Co., WI 16 Snyder International, OH

4 Spoetzl Brewing Co., TX 17 Gordon Biersch Production Brewery, CA

5 FX Matt Brewing Co., NY 18 Full Sail Brewing Co, OR

6 New Belgium Brewing Co., CO 1 Mendocino Brewing Co., CA

7 Redhook Ale Brewery, WA 0 Boulevard Brewing Co., CA

8 Petes Brewing Co., TX 1 Summit Brewing Co., MN

Widmer Brothers Brewing Co., OR Long Trail Brewing Co., VT

10 Pyramid Breweries Inc., WA Goose Island Beer Co., IL

11 Deschutes Brewery, OR 4 Rock Bottom Restaurants, CO

1 Anchor Brewing Co., CA 5 BridgePort Brewing Co., OR

1 Alaskan Brewing & Bottling Co., AK

The Value Chain

• Experienced workforce.

• Focus was on freshness.

• Microbrewery used pure ingredients. • Capacity always an issue.

• Successful beer recipes.

• Brewpubs lacked consistency • Beer had to be shipped in refrigerated trucks.

• Transportat-ion was very expensive. • Its target market were 4-45 year olds.

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